The valuation glossary every founder should know

MRR is the foundation of subscription-business valuation. Multiples are typically applied to annualized MRR (ARR) or its profit equivalent. The higher and more predictable your MRR, the higher your sale price.

ARR is the revenue figure most acquirers and investors look at first. SaaS multiples are commonly quoted as "Xx ARR" — e.g., a 3x ARR multiple on $500K ARR means a $1.5M valuation.

Higher ARPU = more pricing power. Buyers prefer businesses with higher ARPU because they're harder to compete with on price and easier to grow without acquiring more users.

IAP-heavy apps are harder to value than pure subscription apps because revenue is more volatile. Apps with consumable IAPs typically trade at 1.7-2.5x SDE; subscription IAPs trade higher (2.5-4x).

Lower churn = higher valuation, full stop. A 30% annual churn rate means losing 30% of revenue every year just to stand still — buyers heavily discount these businesses. Sub-5% annual churn earns serious premium.

The single biggest valuation premium driver in SaaS. NRR above 120% means existing customers grow faster than churn loses them — these businesses get 2-3x the standard multiple. Below 80% NRR triggers serious discounts.

GRR shows the "floor" of your revenue retention — what you'd have left if you couldn't upsell anyone. Buyers look at GRR alongside NRR to understand whether your retention story depends on expansion or genuine stickiness.

For mobile apps, D30 is the cleanest signal of product-market fit. Industry average is around 5-15%. Above 25% earns a premium; below 5% triggers discounts. Compared by category: utilities > productivity > games.

The retention curve (D1 → D7 → D30 → D90) tells acquirers how the app retains users over time. Steep early drop with a flatter long tail is normal; a continuous decline suggests no product stickiness.

SDE is the standard profit metric for businesses under ~$5M ARR. Multiples are typically quoted as "X times SDE" — e.g., 3x SDE on $200K SDE = $600K valuation. Smaller deals almost always use SDE, not EBITDA.

EBITDA is the standard for businesses above $5M ARR, especially when private equity is involved. Multiples typically run 4-8x EBITDA for software, but can go much higher for high-growth or strategic deals.

Multiples are the entire game in app/SaaS valuations. Knowing the typical range for your category (mobile sub: 2.5-4x ARR · SaaS B2B: 3-6x ARR · top quartile: 6x+) tells you what to ask for.

Most app/SaaS valuations are based on TTM SDE or TTM ARR, not last full calendar year. If your last 12 months are stronger than last fiscal year, demand TTM. If they're weaker, expect buyers to use TTM anyway.

LTV tells buyers how durable your customer relationships are. High LTV with stable churn means each customer is "worth" more — and gives you bigger room to spend on acquisition.

Low or zero CAC (organic acquisition) is one of the strongest valuation premiums available. Heavy paid-ad CAC dependency triggers buyer discounts because the business stops growing the moment ad spend stops.

3:1 is healthy. 4:1+ earns a premium. Below 1:1 means you're losing money on every customer — a serious red flag for buyers and a major valuation hit.

The Rule of 40 is what separates "growing fast" from "growing fast AND sustainable." Companies above 40 command premium multiples; companies below it get discounted regardless of headline growth rate.

SaaS businesses with 75%+ gross margins command premium multiples — they have room to invest in growth without burning cash. Below 60% gross margin signals problems with your unit economics that limit valuation.

An LOI is the first "real" offer. Don't sign one without legal review. Once signed, you're committed to negotiating only with this buyer — and they'll find reasons to lower the price during due diligence.

Most price re-negotiations happen during DD. Anything you can't substantiate (revenue claims, retention numbers, ownership of code) becomes leverage for the buyer to lower the offer. Clean books = stronger price.

Earnouts let buyers "buy" higher headline prices without taking the risk. The earnout portion is often discounted heavily by sellers — a $1M deal with $400K earnout is realistically a $600K-$800K deal once you account for the risk of not hitting targets.

Most small app/SaaS deals are asset sales. Stock sales transfer all liabilities (including unknown future ones) to the buyer, so they're rare and require deeper due diligence. Asset sales typically close faster but may have tax implications for the seller.

Escrow protects both sides. The seller doesn't release the asset before payment is secured; the buyer doesn't pay before the asset is verified. Standard fee is 0.5-1% of the deal, usually split.

For mobile apps, DAU is the primary engagement metric. The DAU/MAU ratio (stickiness) is more useful than DAU alone — anything above 25% is solid; above 50% is exceptional.

MAU is the standard mobile-app reach metric, frequently reported in pitch decks and broker listings. By itself it's a vanity metric — buyers care more about MAU paired with conversion rate, retention, and ARPU.

TAM matters for venture-style deals where buyers care about future scale. For app/SaaS sales under $5M, TAM is mostly storytelling — actual revenue and retention drive the price.

Cohort retention curves are the single most credible retention proof you can present. A buyer reviewing your "monthly cohort retention chart over 24 months" is far more convinced than one looking at average D30 retention.

Quick Ratio above 4 is excellent. Above 2 is healthy. Below 1 means you're shrinking. Buyers use it to predict near-term growth trajectory beyond what current ARR shows.

Strong ASO = organic acquisition = premium valuation. Apps with most installs coming from ASO/store search rather than paid acquisition trade at meaningfully higher multiples because growth doesn't depend on ad spend.